Serious question about the whys of a tax break for depreciating rental property.
Posted by
ceregon
Mar 10 '11, 10:49
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Rental property is depreciated over 27 years, meaning that each year I get to expense 1/27th of the value and deduct it from my rental income, even though it costs me nothing (any repair or maintenance expenses are deductible in the year they occur). This gives me near $5k deduction per year for each LV house, so I pay significantly less in taxes because with the depreciation one house loses money and the other goes from a large profit to a small profit.
I pay this back because after 27 years, the cost basis for the house is effectively 0, so I would pay taxes on the entire sale amount, however, the tax rate on capital gains is much lower than the rate on income. Plus I get the use of the money for 27 years before I have to pay for the privilege (or never if I don't ever sell).
So why would they set this up this way. It seems like it just lets people who can afford to buy multiple houses and rent them out a lot more money. If they supposedly want people to own their own home, then why do this to encourage landlording?
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